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Imperial Tobacco Falls Most Since 2009 on First-Half Profit Blow

Matthew Boyle and Gabi Thesing

January 30, 2013, 9:33 AM EST

Imperial Tobacco Group Plc, Europe’s second-biggest tobacco company, slumped the most since May 2009 in London trading after saying first-half profit will decline because of worsening conditions in countries such as Spain.

The shares fell as much as 5.4 percent to 2,333 pence, the lowest intraday price since Nov. 1.

Imperial generates about 40 percent of profit from Europe, where consumption of duty-paid cigarettes slid 7 percent in the first quarter ended Dec.31, the Bristol, England-based company said today in a statement.

Growth in emerging markets and higher prices helped fuel a 2 percent increase in net tobacco revenue during the quarter, though that was below the average estimate of eight analysts surveyed by Bloomberg for a 3.2 percent increase. About 55 percent of profit will come in the second half of the fiscal year ending in September, the company also said, adding that it still sees full-year results “in line” with expectations.

“It was a soft quarter, with trading worsening in Europe and Russia, and this means profits will be under pressure in the first half,” said Rogerio Fujimori, an analyst at Credit Suisse. “Cost savings will save the day in the second half.”

Imperial Tobacco was down 5.1 percent at 2,341 pence at 2:16 p.m., the third-biggest drop in the U.K. FTSE 100 Index. Competitor British American Tobacco Plc also fell, retreating

1.1 percent to 3,266.5 pence.

CFO Retiring

Imperial has raised prices and pushed its main brands into emerging markets to make up for declining consumption in countries such as Spain and the U.K., where the company is market leader. Britain, which accounts for about 20 percent of Imperial’s profit, according to Berenberg Bank, is considering a law that would require cigarettes to be sold in plain packs without any logos, following Australia’s legislation last year.

“Ongoing weak volume trends in Europe are not a huge surprise, but given recent strong pricing in the U.K. and France we had expected a little better,” said James Bushnell, an analyst at Exane BNP Paribas in London.

So-called “strategic brands,” which also include JPS, boosted shipments by 10 percent and revenue by 12 percent in the quarter, said the company, which holds its annual meeting today. Fine-cut tobacco volumes rose 9 percent, thanks to gains in western and central Europe.

“The growth momentum in key markets in Africa and the Middle East and Asia Pacific is being offset by the current adverse market dynamics in Europe,” Chief Executive Officer Alison Cooper said in the statement. The company also said Chief Financial Officer Bob Dyrbus is retiring and will remain in the post during the process to appoint his successor.

In the U.S., a country Cooper pledged to focus on after a decline in revenue and market share in 2012, the cigarette maker said its share of spending was “stable.”